I didn’t plan to dwell on this, mostly because it was entirely predictable, but I’d be remiss not to at least mention it. If nothing else, it’s funny.
When Tesla first disclosed its decision to put $1.5 billion in Bitcoin on the balance sheet, I suggested it might be possible to use the position to manage quarterly results — crypto window dressing, if you will.
Sure enough, the company “padded profits” (as Bloomberg put it) in Q1 with Bitcoin sales. “Year over year, positive impacts from volume growth, regulatory credit revenue growth, gross margin improvement driven by further production cost reductions and sale of Bitcoin were mainly offset by a lower ASP, increased SBC, additional supply chain costs, R&D investments and other items,” Tesla said, in the financial summary section of its latest slide deck. Bitcoin sales had a “$101 million positive impact.”
Officially, Tesla beat the Street handily on what we’re calling “the bottom line” these days. Do note that according to at least one bank, 25 cents of adjusted earnings was attributable to regulatory credit sales and Bitcoin trading. That suggests that absent those boosters, Tesla would have missed consensus by around 12 cents. (Maybe “trading” isn’t the right word. If you have a more apt descriptor, feel free to let me know.)
If you listen to the call (I don’t recommend it, honestly, or at least not if you consider yourself a traditional kinda gal or guy), CFO Zachary Kirkhorn described the gain from Bitcoin as “small.”
“We also invested $1.5 billion in Bitcoin during the quarter, then trimmed our position by 10%, which contributed to a small gain in our Q1 financials,” he said, later adding that,
We also allow customers to make vehicle deposits and final vehicle purchases using Bitcoin.
And so where our Bitcoin story began, maybe just to share a little bit of context here. Elon and I were looking for a place to store cash that wasn’t being immediately used, trying to get some level of return on this but also preserve liquidity.
Particularly as we look forward to the launch of Austin and Berlin, and uncertainty that’s happening with semiconductors and port capacity, being able to access that cash very quickly is super important to us right now.
And there aren’t many traditional opportunities to do this or, at least, that we found and in talking to others that we could get good feedback on, particularly with yields being so low and without taking on additional risk or sacrificing liquidity.
And Bitcoin seemed, at the time, and so far has proven to be a good decision, a good place to place some of our cash that’s not immediately being used for daily operations or maybe not needed until the end of the year and be able to get some return on that.
And I think one of the key points that I want to make about our experiences in the digital currency space is that there’s a lot of reasons to be optimistic here. We are certainly watching it very closely at Tesla, watching how the market develops, listening to what our customers are saying.
But thinking about it from a corporate treasury perspective, we have been quite pleased with how much liquidity there is in the Bitcoin market. So our ability to build our first position happened very quickly. When we did the sale later in March, we also were able to execute on that very quickly.
In my opinion (which, last I checked, I’m still entitled to, even when it runs counter to the opinions of folks who build spaceships), some of that assessment from Kirkhorn comes across as a belabored attempt to justify something which is difficult to justify using anything like traditional corporate speak.
To be sure, it’s absolutely true that yields are negligible and any CFO would be derelict not to be concerned about a dearth of available opportunities in that regard.
But Bitcoin, like gold, has no underlying rate of return. It doesn’t pay any interest. It’s not a fixed income instrument. So “return” just means “market gains.” Also, it’s not “cash.” And it’s not a “cash” substitute if you conceptualize of “cash” as something that doesn’t exhibit extraordinary volatility.
The figure (above) seems entirely inconsistent with Kirkhorn’s contention that Bitcoin is somehow a viable solution to the (very real) dearth of “traditional opportunities” to generate return on cash “without taking on additional risk or sacrificing liquidity.”
Risk isn’t always synonymous with volatility, but for what it’s worth, just about the only thing more volatile than Bitcoin is Tesla itself.
It’s not obvious, to me anyway, that Bitcoin is the only (let alone the best) opportunity for the deployment of idle corporate cash. I can’t claim to have ever been a corporate treasurer for an S&P 500 company, but, unlike some of your other “favorite” independent market commentators, I did go to business school. And I can say, with 100% certainty, that there are less volatile options for generating return on cash, where “return” actually means “return,” as opposed to just “market gains.”
Ultimately, Tesla is engaged in Bitcoin trading. I don’t see any way around that. And I’m not sure Tesla is trying to get around it in the first place. Kirkhorn seemed to say that the company entered and (partially) exited pretty quickly. Which is fine. And, as he noted, the decision to get into Bitcoin has been a “good” one “so far.”
But when Kirkhorn suggested, on the same call, that Bitcoin is somehow a superior option when it comes to “global liquidity for the business” and “being able to get cash in and out of the markets,” I have my doubts. Those doubts are even more grave when it comes to the proposition that Bitcoin is appropriate for corporates trying execute from a “risk management” perspective. I can’t imagine anyone, anywhere, teaching that to graduate students destined for careers in corporate America.
Kirkhorn went on to reiterate that Tesla believes “long-term in the value of Bitcoin.”
Somewhat paradoxically, I’d venture that was the least speculative Bitcoin-related statement he made on the call. In part because Tesla’s ongoing support helps ensure Bitcoin’s long-term potential.